Despite having a healthier balance sheet than similar firms in the banking industry, Wells Fargo has been subject to market drag that has crushed the financial sector. The acquisition of Wachovia presents short-term problems as it tries to digest toxic assets.
In January, Moody’s cut Wells Fargo due to leverage concerns associated with its Wachovia purchase.
Moody’s senior vice president Sean Jones noted, “The fall in Wells Fargo’s tangible equity ratio results from the fact that the equity it raised was low in comparison to the amount and quality of the Wachovia assets it acquired.”
It’s still too early to jump back into U.S. banks. There is too much uncertainty revolving around toxic assets and market drag from peers in the sector will continue to weigh on better-positioned names.
The $25 billion in federal funds and $13 billion raised through private equity have raised dilution fears.
Wells Fargo’s relatively high dividend payout (34 cents) has been the subject of speculation as pressures on the banking system continue to mount. Wells might be forced to put a hatchet to the dividend similar to Citigroup and Bank of America.
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